{ "title": "Australia: Staff Concluding Statement of the 2022 Article IV Mission", "publication": "IMF News, November 15, 2022", "sourceUrl": "https://www.imf.org/en/news/articles/2022/11/15/australia-staff-concluding-statement-of-the-2022-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2022/11/15/australia-staff-concluding-statement-of-the-2022-article-iv-mission", "overlayPath": "/en/news/articles/2022/11/15/australia-staff-concluding-statement-of-the-2022-article-iv-mission/index.md", "summary": "Australia: Staff Concluding Statement of the 2022 Article IV Mission", "publishDate": "2022-11-15", "sections": [ { "heading": "Macroeconomic outlook and recent performance", "content": "- Australia’s recovery since the depth of the pandemic has been among the strongest in the advanced economies and has returned to its pre-pandemic output trend.\n- Growth in the first half of 2022 was 3.4 percent y/y.\n- Growth is expected to slow from an expected 3.7 percent in 2022 to about 1.7 percent in 2023-24.\n- Trimmed mean (underlying) inflation rose to 7.3 percent y/y in Q3 2022.\n- RBA has hiked the policy rate by cumulatively 275 bps since May to 2.85 percent.\n- Under baseline expectations, trimmed mean inflation is likely to remain elevated before declining to around 3 percent toward the end of 2024.\n- Labor markets show employment and labor force participation near record highs; the unemployment rate is near a 50-year low.\n- The Australian dollar and the country’s external position appear broadly in line with medium-term fundamentals." }, { "heading": "Risks and scenarios", "content": "- Significant downside risks: a more pronounced global growth slowdown (including in China), more persistent inflationary pressures, and an acceleration of the ongoing housing price decline.\n- In the staff baseline scenario, Australia is expected to steer clear of a recession, but with significant downside risks.\n- Possible transmission channels to worsen outcomes: steeper and more prolonged monetary tightening if inflation/wage pressures persist; accelerated housing price declines reducing household consumption and affecting banks’ balance sheets.\n- Household buffers (accumulated savings) could dampen and delay monetary transmission; high household debt and many mortgages on floating or soon-resetting rates point to relatively strong transmission." }, { "heading": "Monetary and fiscal policy guidance", "content": "- Continued monetary and fiscal policy tightening is needed to rebalance domestic demand and keep inflation expectations well anchored.\n- Monetary policy recommendations:\n - RBA should continue to raise interest rates to keep inflation expectations well anchored.\n - Communication should carefully assess the balance of risks and policy intentions given uncertainties in monetary transmission.\n- Near-term fiscal guidance:\n - Fiscal policy should support monetary tightening by moderating domestic demand growth through judicious budget execution and saving of any revenue overperformance.\n - Fiscal support to address cost-of-living pressures should be temporary and well-targeted to the vulnerable to avoid broader demand stimulus.\n - Activity through newly created investment vehicles (National Reconstruction Fund, Rewiring the Nation, and Housing Australia Future Fund) should be phased judiciously; proliferation of such vehicles should be avoided.\n- Medium-term fiscal guidance:\n - Medium-term fiscal plans should remain on a continued consolidation path despite substantial fiscal space.\n - Growth in spending on the National Disability Insurance Scheme (NDIS), healthcare, and aged care is a risk to consolidation; reviewing these programs and designing reform options to strengthen efficiency and contain cost growth is recommended.\n - Saving expected revenue overperformance and judicious implementation of spending programs, including infrastructure investment, would help contain demand and inflation." }, { "heading": "Tax policy recommendations", "content": "- Tax reform could strengthen economic efficiency and public revenue:\n - Transition from currently high direct taxes to underutilized indirect taxes, mitigating regressive impacts with targeted cash transfers to vulnerable households.\n - Address bracket creep by raising tax brackets periodically.\n - Stage 3 personal income tax cuts will reduce the personal income tax burden.\n - Longstanding recommendations: broaden the goods and services tax (GST) base to limit exemptions for healthcare spending; restrict the capital gains tax exemption for the sale of main residences.\n - Publication of additional information on distributional features of the tax system will be helpful.\n - At state and territory level, implement recurring property taxes in lieu of stamp duties to promote housing affordability, labor mobility, and more stable tax bases." }, { "heading": "Financial sector resilience and oversight", "content": "- The financial system appears resilient with adequate buffers and overall good liquidity positions.\n- Risks and monitoring priorities:\n - Higher global and domestic interest rates, falling housing and stock prices warrant close monitoring for pockets of vulnerability.\n - Some increase in non-performing loans likely, especially among lower-income, highly indebted households with recent mortgages.\n - Expected increase in bank wholesale funding at a time of higher rates and slowing growth may pose vulnerabilities, although liquidity coverage ratios are well above regulatory minimums and the share of deposits in the funding mix has improved.\n - The increase in banks’ required capital buffers in the 2023 capital framework is welcome.\n - Close scrutiny of non-bank financial institutions is important given their rapid growth from a low base.\n - Potential cyberthreats require continued investment, close monitoring and contingency planning.\n- Policy/action items:\n - Council of Financial Regulators, including ASIC, can further improve standardized climate-risk disclosures for large, listed companies.\n - Expand AML/CFT regulation to cover designated non-financial businesses and professionals and continue enhancing beneficial ownership transparency." }, { "heading": "RBA governance", "content": "- The ongoing RBA review is welcome:\n - Opportunity to reaffirm the inflation targeting regime within a clearly focused mandate.\n - Opportunity to revisit governance arrangements and decision-making processes.\n - Consider instituting periodic reviews in line with practices of some other central banks." }, { "heading": "Housing market and affordability", "content": "- Housing prices have reversed from earlier surge and are expected to continue declining significantly amid rising interest rates, high inflation, and increasing housing supply.\n- Affordability concerns are increasing due to strongly rising rents and lower borrowing capacity from much higher mortgage rates.\n- Policy recommendations:\n - Strong focus on boosting housing supply.\n - Well-targeted support for lower-income households.\n - At the state/territory level, move from stamp duties toward recurring property taxes to support affordability and mobility." }, { "heading": "Crypto, payments, and regulatory architecture", "content": "- Crypto assets are largely unregulated for conduct and prudential purposes; various agencies supervise under frameworks not originally designed for crypto.\n- Ongoing efforts: “token mapping” and identifying needed regulation.\n- Policy recommendations:\n - Achieve greater clarity in the regulatory architecture to ensure timely risk monitoring and clearer roles/coordination among regulatory agencies.\n - Strengthen consumer protection.\n - Reform payments regulatory framework to address new products and technologies." }, { "heading": "Climate mitigation and energy transition", "content": "- The revised 2030 greenhouse gas emissions target (reduction by 43 percent from 2005 levels) is broadly in line with the long-term goal of reaching net zero by 2050 and puts Australia within the range of targets of other advanced G20 economies.\n- The new Climate Change Act creates a framework for accountability, including legislating mitigation targets.\n- Policy recommendations:\n - An economy-wide carbon price is the most effective way to achieve emission reductions; where not feasible, strong sectoral policies with price signals can help deliver needed abatement.\n - Transform the Safeguard Mechanism into a binding baseline-and-credit scheme as planned to drive down industrial emissions efficiently.\n - Step up energy sector investment under the Rewiring the Nation program to speed deployment of renewables.\n - Combine higher renewables penetration with adequate dispatchable capacity and an upgraded grid to improve electricity sector resilience and reduce risks of disruptions and price spikes." }, { "heading": "Structural reforms and inclusion", "content": "- Addressing the labor productivity slowdown and achieving greater inclusion requires greater structural reform efforts.\n- Policy recommendations:\n - Sustain infrastructure spending but reprioritize and streamline the ambitious infrastructure pipeline given binding construction-sector constraints.\n - Work proactively with the construction industry to alleviate capacity constraints.\n - Support greater innovation, build digital infrastructure and skills, and reduce regulatory burden on business to boost potential output.\n - Recent policy initiatives noted as welcome: free vocational training, expansion of university capacity, a temporary increase in migration, larger child-care subsidies, and expanded parental leave.\n - The Jobs and Skills Summit highlighted priorities to boost inclusion, encourage female labor force participation, and tackle skill shortages.\n\nSource: IMF staff concluding statement, November 15, 2022.\n\n---\n\n\n References\n\n- Australia and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2022/11/15/australia-staff-concluding-statement-of-the-2022-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2022/11/15/australia-staff-concluding-statement-of-the-2022-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2022/11/15/australia-staff-concluding-statement-of-the-2022-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2022/11/15/australia-staff-concluding-statement-of-the-2022-article-iv-mission/bundle-manifest.json)", "Published: November 15, 2022", "Australia’s recovery since the depth of the pandemic has been among the strongest in the advanced economies and has returned to its pre-pandemic output trend.", "Growth in the first half of 2022 was 3.4 percent y/y.", "Growth is expected to slow from an expected 3.7 percent in 2022 to about 1.7 percent in 2023-24.", "Trimmed mean (underlying) inflation rose to 7.3 percent y/y in Q3 2022.", "RBA has hiked the policy rate by cumulatively 275 bps since May to 2.85 percent.", "Under baseline expectations, trimmed mean inflation is likely to remain elevated before declining to around 3 percent toward the end of 2024.", "Labor markets show employment and labor force participation near record highs; the unemployment rate is near a 50-year low.", "The Australian dollar and the country’s external position appear broadly in line with medium-term fundamentals.", "Significant downside risks: a more pronounced global growth slowdown (including in China), more persistent inflationary pressures, and an acceleration of the ongoing housing price decline.", "In the staff baseline scenario, Australia is expected to steer clear of a recession, but with significant downside risks.", "Possible transmission channels to worsen outcomes: steeper and more prolonged monetary tightening if inflation/wage pressures persist; accelerated housing price declines reducing household consumption and affecting banks’ balance sheets.", "Household buffers (accumulated savings) could dampen and delay monetary transmission; high household debt and many mortgages on floating or soon-resetting rates point to relatively strong transmission.", "Continued monetary and fiscal policy tightening is needed to rebalance domestic demand and keep inflation expectations well anchored.", "Monetary policy recommendations:", "Near-term fiscal guidance:", "Medium-term fiscal guidance:", "Tax reform could strengthen economic efficiency and public revenue:", "The financial system appears resilient with adequate buffers and overall good liquidity positions.", "Risks and monitoring priorities:", "Policy/action items:", "The ongoing RBA review is welcome:", "Housing prices have reversed from earlier surge and are expected to continue declining significantly amid rising interest rates, high inflation, and increasing housing supply.", "Affordability concerns are increasing due to strongly rising rents and lower borrowing capacity from much higher mortgage rates.", "Policy recommendations:", "Crypto assets are largely unregulated for conduct and prudential purposes; various agencies supervise under frameworks not originally designed for crypto.", "Ongoing efforts: “token mapping” and identifying needed regulation.", "Policy recommendations:", "The revised 2030 greenhouse gas emissions target (reduction by 43 percent from 2005 levels) is broadly in line with the long-term goal of reaching net zero by 2050 and puts Australia within the range of targets of other advanced G20 economies.", "The new Climate Change Act creates a framework for accountability, including legislating mitigation targets.", "Policy recommendations:", "Addressing the labor productivity slowdown and achieving greater inclusion requires greater structural reform efforts.", "Policy recommendations:", "[Australia and the IMF](http://www.imf.org/external/country/AUS/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2022/11/15/australia-staff-concluding-statement-of-the-2022-article-iv-mission/index.md", "json": "/en/news/articles/2022/11/15/australia-staff-concluding-statement-of-the-2022-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2022/11/15/australia-staff-concluding-statement-of-the-2022-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T01:38:33.113Z" }